Dougal Mair is the principal adviser at Value Prophet.
1. How and why did you get started investing? What is your background?
My wife and I were doing the typical New Zealand property investing thing, but we were struggling to find properties that could be purchased at a price where the rental income would cover most of the outgoings – we were not keen to negative gear as much as was required. So, we started looking for other investment options.
We then went to an investing seminar held by a financial adviser, who turned out to be a promoter of Value Investing. I got hooked and sought to learn more. Long story short, I went on to get my financial adviser qualification and then established Value Prophet. My mission is not to provide financial advice, like other financial advisers, but to educate and coach people in investing so that they can do it confidently themselves. Just like the saying, “Give a man a fish and you feed him for a day. Teach him to fish and that will feed him for a lifetime.”
2. Describe your investing strategy and portfolio organization. Where do you get your investing ideas?
Due to my wife and my time of life and being 10-plus years away from retirement, our investing strategy is a fairly aggressive-growth oriented. We invest in shares in approximately 14 companies – mainly New Zealand, Australia, USA and U.K. – using our value investing method and only in great businesses that tick the boxes of our investment checklist.
We have diversified, though, so have also invested in a health sector ETF, OTC shares in a dairy farm in New Zealand and a retirement financial services company, and we lend via a couple of peer-to-peer lending platforms. Plus, we invest in ourselves – the Value Prophet business, but also in our ongoing learning and professional development.
Our investing ideas come from many sources. The key is to being open to new ideas and then properly evaluating each opportunity. We actually run our personal finances like a business – we are in the business of building wealth and funding our lifestyle. So, we evaluate each opportunity, just like someone in business would.
3. What drew you to that specific strategy?
Value. Yes, the term "value." Over the years as our personal financial and investing strategies matured we noticed more and more that our decision making was closely aligned with value. For example, would this investment opportunity provide more value than this other one? Would that investment actually be more valuable than an investment we already have? Does the value of this investment sufficiently offset the cost-value of the potential risks? If we spend money on a household item, which make and model, and which retailer will provide the best value? Is this use of our time providing the best value? You get the picture.
4. Which books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? Which investors do you follow today?
Robert T. Kiyosaki’s book, "Rich Dad Poor Dad," was quite influential in our thinking in the early days of our investing journey. Then Charles S. Mizrahi's "Getting Started in Value Investing" was the book that really sold us on value investing. However, there was one coaching exercise we did when we were developing our first financial plan that was quite enlightening.
The exercise was around understanding the mental barriers that were holding us back in terms of financial success. For me personally it was around my mental picture of financial success. I was raised on dairy farm in a rural community and often I'd hear my parents, and our family friends, saying things like "Joe Blogs must be doing all right, as I see they've got another new car." So, my mental picture of "wealth" was shiny new material things. Not investing and building wealth for one's future. I wish I'd had this realization earlier and started investing way sooner!
I don't follow any particular investor today but rather keep a weather eye on information from various sources.
5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?
Basically, we hold a stock until we can see its intrinsic value declining and we have a stock, or other investment, of better value to replace it.
Yes, we have backed the odd loser, but thanks to our disciplined approach to how we evaluate businesses we haven't had any total lemons. Just some that take longer to show a return than we expected.
6. How has your investing approach changed over the years?
With experience comes skill and nous. In hindsight, I'd wished I had trusted my instinct on some of the early investments we passed up due to them not quite meeting our investment criteria. But, then we probably dodged a few bullets by sticking to our criteria, too. I guess over the years we have become much more confident with our investing approach so it's no longer as scary placing buy/sell orders as it was.
7. Name some of the things that you do or believe that other investors do not
I don't think what I do is particularly special, and there will be others who do things similarly. However, unfortunately, I believe there are not enough retail investors out there investing well enough. This is what I want to help address and is the vision for my Value Prophet business.
8. What are some of your favorite companies, brands, or even CEOs? What do you think are some of the most well-run companies?
Not sure that I have any specific favorites, but I quite like the companies we have stock in that provide housing and services for the elderly. Our population is getting older so it's quite a strong growth area at present.
9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?
Yes, I quite often use the GuruFocus All-in-One Screener. Not to find ideas directly but rather to find a few companies to analyze in response to a growth idea I've had. For example, one idea I had recently was in relation to battery technologies. I think the key to the success of some future technologies (e.g., miniaturization, electric vehicles, off-grid solar power, etc.) is better batteries. So, I'm on the lookout for the best listed company that is either a leader in battery technology, or in the materials used by battery companies. Still trying to find the winner on this one though.
I also get ideas from e-newsletters from several sources, too. I'm subscribed to quite a few free email lists –Â good in terms of variety, but you need to wade through quite a bit of coal in order to find a few nuggets.
10. Name some of the traits that a company must have for you to invest in, such as dividends. What does a high quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.
Having a growth-oriented strategy, a company must have a high return on equity (ROE > 15%). It also goes without saying that they should then be reinvesting the earnings to grow the company so dividends should be minimal (payout ratio < 0.5).
Strong management is also a must, so I read and analyze the board and CEO's reports in the company's annual reports – they must pass the "would I trust them with the keys to my house while we're on vacation" test. The company should also have a wide moat.
11. What kind of checklist do you use when investing? Do you have a specific approach, structure, process that you use?
Being an ex-pilot (now sailor), yes, we have a fairly detailed checklist. One that is specific to our financial plan. I always strongly recommend checklists to my clients – especially as they help take the emotion out of the investment decision process. It's a bit like buying a house. If you are buying a house for yourself to live in then you can be forgiven for paying a little more for a house you love. However, if you are buying a house as an investment property then you will be looking for houses that tick the right boxes and are suitable for renting. You won't care too much what the house looks like, as you won't have to live there. So a checklist for your investment analysis is a must.
12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?
The research I do is mainly based on what information is available online. I'd love to be able to talk to a company's management, but I'm not an institutional investor so they probably wouldn't give me the time of day.
The research I do is pretty much aimed at ticking the boxes on our investment checklist, but also to understand the business model of the company and the associated risks. I'm a firm believer in that as an investor you need to understand how the company makes its money and how the company provides a return on investment to its shareholders. If I can't understand it then I don't invest in it.
13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock?
I have developed my own proprietary method for evaluating the intrinsic value of listed companies. It's working well for our investments, and I use it with my clients to good effect, too. I am now currently in the process of developing a web-based version of the tool that will be made available to online users on a subscription basis.
14. What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas, and why?
Not too many bargains around at the moment, however I have quite a few companies on my watch list. I then use volatile market events, like the recent Brexit dip, as buy opportunities.
As I mentioned above, companies that provide housing, aged care and other services for our aging population is one of my favorite areas at the moment.
15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?
Yes, the markets do seem fairly overvalued at the moment, with average PE ratios being quite a bit higher than the norm. There is bound to be a correction at some stage, but being a long-term growth investor, it doesn't concern me too much. I can't wait for the buying opportunities actually.
16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?
Actually, due to Value Prophet being an early startup business, I'm reading online inbound marketing and SEO books at the moment.
However, one of my favorite books that was quite influential in my understanding of the intrinsic value of companies was Brian McNiven’s "Concise Guide to Value Investing." The key lesson from the book being that you need to understand how a company makes and uses its profits in order to be able to work out its intrinsic value.
17. Any advice to a new value investor? What should they know and what habits should they develop before they start?
Invest in yourself before you start investing. Learn and gain knowledge before dipping your toe in the water. But do dip your toe once you're ready. And I really do mean "dip your toe" – i.e., don't invest your funds all at once.
Once you have made the decision to start investing, you will be really keen to put all your funds to work. However, when starting out you're likely to make the odd mistake or bad call. Better to learn from your mistakes with a smaller amount. Plus, by investing over time you can take advantage of the swings of the market, too.
18. What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?
GuruFocus is my main investing resource. GuruFocus covers all the markets I invest in, has 15 years of historical financial data (which I use as a data feed for my proprietary Intrinsic Valuation tool) and is reasonably priced (especially compared to the combined costs of research websites that only cover one market).
There's no specific investors that I follow. However, I do rate some of the recommendations and market commentary that Roger Montgomery and the team at Clime Asset Management (StocksInValue) release from time to time.
19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments? What did you learn and how do you avoid those mistakes today?
The biggest mistake I've made is investing in the Australian mining sector during its the peak back around 2012. Monadelphous (ASX:MND, Financial) being my biggest loser. However, please note that I haven't realized any losses by selling, and I have no plans too. As soon as I see a turnaround or sector recovery coming then I intend to average down. They are still well-run companies. I just didn't understand the sector's economic cycle at the time (a lesson learned and a risk I now watch out for).
20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?
Checklists, thorough analysis and standing by my convictions. Investing is a long game for me – the ups and downs are just part of the game.
21. If you'd like to share, how have the last five to 10 years been for you investingwise?
Except for the Australian mining shares I mentioned above, our share portfolio has been performing really well. Except for the short-term dairy price slump affecting the dividends of our dairy farm investment, our wider investment portfolio is performing quite positively too.
Start a free seven-day trial of Premium Membership to GuruFocus.
